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Rebooting Britain: Promote another financial crash

This article was taken from the January issue of Wired UK magazine. Be the first to read Wired's articles in print before they're posted online, and get your hands on loads of additional content bysubscribing online

The UK economy has just had its nastiest shock since, well, you can pick your historical reference: the oil-price crisis of 1973-4, which led to the three-day week and forced us into the uncomforting arms of the IMF, the great depression of the 30s... The recent crisis, however, was arguably scarier than either of those. The oil-price hike was based on a real thing, and the stock-market crash was in its way a real thing too. But the current problems were caused by a seizure inside the world of money, a self-generated spasm inside a capitalist machine which was supposed to be working with an efficiency it had never before achieved; it was a pure, almost self-referential form of financial implosion.

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Nothing quite like this has ever happened before.

The Rolling Stones were right: you can't always get what you want. In this case what we want is a resurgence in our economy, founded on manufacturing. We want to start making more stuff people want to buy. Instead we have an economy based far too much on financial services, and on a financial sector that does little to serve the wider public interest. Most of what happens there is a zero-sum game, transactions in which one party makes money and another loses money and a middleman takes a cut of the action. The only thing that does for the wider polity is raise some money through taxation.

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Now, the tax money is very welcome. The problem is that in the five years of boom immediately preceding the great implosion, the financial sector generated £203 billion in taxes. That's a lot of money. Unfortunately the upfront cost of the bail-outs is estimated by the IMF as being, at a minimum, £289 billion. Even bankers should be able to do the arithmetic.

Nothing that has been proposed goes anywhere near the radical action we're going to need to fix this. Tinkering with bonuses and incentives is fine, but what we need is to remake our economy, with banks broken up and downsized so that their actions can never again threaten the entire social order. For a little while it looked as if there might be collective political will to do that, but the critical moment faded. So the unfortunate truth is that what the economy most needs now - more than a recovery which permits a resumption of the old status quo - is another shock to the system, hopefully not as bad as last time, but something like a stock market crash or a bank failure, just to remind us that this thing is nowhere near fixed. We need something that makes the politicians cack their pants. If we don't get it, we're just lining things up for the next, even bigger self-generated financial system disaster - and when that comes, George W Bush's prediction will come true, and this sucker really will go down.

John Lanchester's account of the credit crunch, Whoops, will be published by Allen Lane in January.